Refined sugar price hits highest level in a decade

A worker stands on a mound of sugarcane outside Bareilly, India, in 2021.
A worker stands on a mound of sugarcane outside Bareilly, India, in 2021. (AP)

Sugar, consumed in everything from chocolate and fizzy drinks to baked goods and condiments, is becoming even more expensive, raising costs for the industry and keeping upward pressure on global food inflation.

Prices of refined sugar surged to the highest level in more than a decade this week, on track to jump about 11% overall this month, the highest monthly increase in two years. The raw variety, meanwhile, is hovering near its most expensive level in more than six years. Global supplies are becoming tighter, mainly because India, one of the world's top sugar shippers, is cutting exports after rains hurt its sugar cane crop and as the country diverts more sugar to produce biofuel.

Sugar exports from India are set to almost halve, to 6 million tons, in the year ending in September, from about 11 million tons a year earlier, and are expected to slump to as low as 4 million tons next season, according to a Bloomberg survey of traders and analysts. That reduces supply in a market that's already tipped to indicate a shortage next year, according to consultancies Green Pool and Covrig Analytics.

If the country exports less sugar than expected next season, "prices will have to rise to extract sugar from any other part of the world," said Henrique Akamine, head of sugar and ethanol at Tropical Research Services.

India is forecast to be responsible for 6 million tons of international sugar trade flows in 2023-2024, said Akamine. "If you simply remove even half of what we're forecasting, the trade flow will go into deficit."

While Brazil, the world's top sugar shipper, is expecting bumper production of sugar cane, rains have delayed harvest efforts and port capacity there likely will constrain supplies to the global market as the country harvests a record soybean crop.

Output in Thailand, another leading sugar exporter, is also likely to miss forecasts this year.

A steady increase in global consumption and declining stockpiles have made supplies from India even more crucial for the world market. In a sign of India's importance, prices soared to a six-year high in January on concerns the country wouldn't approve more exports this season. When the Indian government signaled in March it expected to allow more shipments, prices eased.

Heavy rains cut cane yields in Maharashtra, which accounts for more than a third of the India's sugar output. The food ministry there expects national production to fall to 33.6 million tons in the current season, down from earlier estimates of 35.2 million tons and 35.9 million tons.

While it's still early to assess India's output in the season starting in October, estimates range from 32 million to 34 million tons, with the potential for an even lower crop if the El Niño weather pattern brings dry weather to the region as promised, traders and analysts said. Production of 32 million tons is expected to provide an exportable surplus of 4 million to 4.5 million tons, said Rahil Shaikh, managing director of trader Meir Commodities India.

At the same time, Indian Prime Minister Narendra Modi is pursuing an aggressive biofuel program that will see more sugar cane being diverted to make ethanol. The Indian government says benefits of the program include reducing air pollution, cutting oil-import bills, making use of excess local production and increasing farmer incomes.

This season the Indian government plans to divert 5 million tons of sugar to make ethanol, up from 3.6 million tons a year earlier. The eventual goal is to divert 6 million tons annually toward fuel production by 2025.

Information for this article was contributed by Patpicha Tanakasempipat and Sanjit Das of Bloomberg News (WPNS).

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